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Medtronic to Combine Cardiac and Vascular Sales Forces

What does Medtronic's new sales strategy mean?

Responding to increased involvement by hospital administrators making purchasing decisions across a spectrum of hospital care, Medtronic(NYSE: MDT) unveiled a new sales strategy which combines its Cardiac and Vascular Group Sales into a single cross-divisional organization, effective May 1.

"This is our response to a rise of administrators increasingly becoming more influential in the decision-making process," said Medtronic spokesman Christopher Garland. "Typically in the past, and we've seen this particularly in the medical device industry, the sole decision maker when it came to making device purchases, the physician or clinician was making those purchases. That is still largely the case today, but what we're seeing now is that administrators are making decisions on devices, and they are making those decisions on the full spectrum of care. What we've done is respond to this shift by creating a Strategic Account Management team, which will report to the new sales organization."

The sales team will specifically focus on meeting previously unmet needs with hospital administrators, Garland explained, offering a full portfolio of services across the cardiovascular spectrum. The new structure will include sales leadership from Cardiac Rhythm Disease Management, Structural Heart, Endovascular Innovations and Peripheral, Coronary, and Renal Denervation. Combined, those groups account for roughly $9 billion in annual revenues. Medtronic plans to divest the Physio-Control group.

Curtis Rooney, president of the Health Industry Group Purchasing Association (HIGPA), says there is a connection between Medtronic's new sales strategy and how it works with group purchasing organizations.

"I don't know how you can talk about a sales strategy without relating it to GPOs," Rooney said.

Rooney explained that the canceled contracts with GPOs in cardiac device areas prevents hospitals to find out national prices on devices. The focus on regional sales also makes it difficult for hospital administrators to compare prices to those in other regions, thus stymieing their benchmarking ability.

'This is an orchestrated attempt to obscure the increasing prices of medical devices," he said. Obscuring prices will improve Medtronic's bottom line, Rooney believes, but only at the expense of hospitals, taxpayers and patients.

Not only will this system make it difficult for hospitals to determine value, the patients will have no way of knowing what the cost on the medical devices will be, either. "It's like going to the grocery store and having a negotiation at the check-out counter and having someone else's credit card pay for it," he said. "It's not an organized, efficient market system."

Rooney believes Medtronic's next step will be to insert very strong gag clause language into contracts, thus prohibiting the sharing of information.

Medtronic's new sales strategy is part of a battle "between those trying to aggregate the purchasing power of hospitals and providers and those who profit from the system trying to disaggregate the system and do one-off deals so they will be able to profit and not have competition, as it should be."

But there are other realities at play as well. Hospitals are bigger and have acquired smaller doctor practices and increased affiliations with independent hospitals. The Wall Street Journal points out that such shifts have watered down the power of a relationship with individual doctors, and Thursday's move by Medtronic could help counter that trend.